Gagliano Giuseppe, in “War and economic intelligence
in contemporary French strategic reflection”
The
existence of economic warfare was perceived as early as in the 19th century by
intellectuals of the caliber of Victor Hugo and academicians from diverse
fields as the ineluctable evolution of the logic of conflict, which, from
material war waged on battlegrounds by soldiers with arms, would be transformed
into a “softer” form of encounter between nations in the international
marketplace, and subsequently into a free exchange of ideas among free spirits.
However,
the international scenario in the last twenty years has certainly not offered
less bitter conflicts than when bombs and ordinance exploded over Europe:
harmony among nations has not even been reached in the West between the United
States and the European Union. In fact, much less it has been reached in the
rest of the world, where democracy remains a dream for billions despite the
significant steps taken in this direction on all five continents. Above and
beyond the widespread disappointment with the real extent of such progress
whose ideal has distinctively defined our concept of modernity, the conviction
persists that conventional war can break out naturally in the economy through
“economic warfare”, which was defined for the first time during the First World
War as a component of the idea of total warfare dear to the German General
Erich Ludendorff. It is a fact that, at this point, economy is not exclusively
what is at stake in conventional warfare.
The
concept of economic warfare seems to have become a “fashionable” topic of late,
not only in strategic study rooms but also and more generally in the context of
a certain geopolitical debate which, in the wake of the disappearance of the
Cold War that for four decades had polarized all attention and quelled all
possible hopes for “happy globalization” and for the ultimate victory of
multilateralism during the Nineties, was required to promptly offer a key to
the interpretation of relations on the global chessboard. In this view, the
21st century will witness the return of international politics dominated by
nation states in full possession of their sovereignty committed to ensuring the
perpetuation of their power in a complex game of alliances and mistrust. It is
also true that, as often happens, a definition’s success, in the media and
elsewhere, is a source of much misunderstanding, imprecise interpretations, and
an overall trivialization of the terms of the question.
The
scope of this article is therefore to precisely delineate this new subject of
theory and practice, assessing its real importance and the instruments by which
it works as an interpretative concept that provides an idea that comes closer
to historical reality and avoids simplistic schematization that makes no
contribution to the real understanding of phenomena.
The nature and scope of economic warfare
One
of the first to refer to economic warfare in today’s sense was former Advisor
to French President Georges Pompidou, Bernard Esambert, who paradoxically, at
the start of that decade of relative peace in international relations following
the dismemberment of the USSR in 1991 and before the New York Twin Towers
attack, published a work that ran against the day’s current thinking. From its
very first pages, ‘La Guerre Economique Mondiale’ dispelled the myth then being
formulated of a multilateral, peaceful world under the aegis of the UN. In the
context of the globalized economy that appeared imminent in the wake of the
fall of communism and the resultant entry of a consistent number of national
economies in the global market, the previous territorial colonialism would be
transformed into the conquest of the most advanced technologies and profitable
markets. The violence of arms would be replaced by a battle of products and
services where exports would be the primary means available to each nation in
its attempt to win this new type of war where companies take the place of
armies and the victims are the unemployed. The origin of this war must be
sought in the confluence of three revolutions whose chronology will be
re-described below.
As
we have seen, the concept of economic warfare is nothing recent. Its
contemporary form may be traced back to immediately after the Second World War,
and more precisely to the GATT Agreements signed in 1947, an event that
established the basis (and regulations) of multilateral commerce and
competition with the objective of promoting the liberalization of world trade.
The original accord was limited in scope, given that both the primary and the
tertiary sectors were excluded and were brought into discussion and negotiations
only between the end of the 20th century and the start of the 21st.
Furthermore,
the Cold War’s logic of power blocs and general geopolitical context limited
economic rivalries and placed more emphasis on the need for internal solidarity
among the various national economics than on assuming positions in defense of
single products and/or industrial sectors.
This
situation of relative equilibrium was shaken up in 1991 by the fall of the
communist bloc, which gave way to the capitalist model (in its neo-liberal
form, in particular) as the only economic system functioning at worldwide
level. Not only were the former communist countries gradually integrated into
the world economy (China entered the WTO, the institution created by the GATT
accord, in 2001; Russia in 2011), also the so-called Third World nations
demanded access to the world markets: this was the triumph of the globalization
begun in the Seventies with the first deregulation measures and the new
political-economic scenario of a world no longer split in two.
What
seemed to be a finally peaceful unification of all the nations under the banner
of free exchange was instead nothing but an excuse for the start of a new war,
this time with the cards finally on the table and no longer masked by the
military stand-off between Cold War blocs: in other words, economic warfare.
As
many analysts have emphasized, power politics have shifted from the military
and geopolitical terrain, where they were previously manifested in the form of
clashes between blocs and peripheral conflicts, to economic and commercial
terrain, where the nations fight for control of resources and markets.
Under
these circumstances, commercial exchange is nothing but another way of waging
war in which another nation’s armed front is weakened; for such reason,
investments, government subsidies, and foreign market penetration amount to
practically the same thing as allocations for armaments, technological progress
in munitions, and military advance on foreign soil.
We
are clearly far from the visions of Illuminist and 19th century intellectuals
who hoped for a “softening” of international relations through the free
circulation of goods and ideas. In any case, it would have been reductive to
believe that geoeconomics was capable of cancelling geopolitics.
Among
the various experts concerned, Christian Harbulot insisted on the fact that
there are various chessboards, and they intersect one another only partially:
harmonious exchange, economic warfare and geopolitical ends can coexist and even
interact because they take place in worlds that have autonomous logic but are
inevitably linked together.
It
was during the Nineties that what might be defined as an authentic Copernican
revolution occurred in international relations and marked the shift from the
classical geopolitics of nation states fighting for control of territories to a
world economy (or economic warfare), in which nations clash for the control of
the global economy.
This
is not an exclusively intellectual idea developed by experts in the field but
instead an observation, by now within the reach of public opinion, to the
extent that it has even made its way into advertising slogans, like the one
coined by a European consumer electronics manufacturer at the height of the
First Gulf War: “the Third World War will be an economic war: choose your
weapons here now”.
The
position taken by the United States in this new era is very clear: national
security depends on economic power.
First
of all, as the superpower of the bloc that emerged victorious from the Cold
War, it was in a privileged position to understand the change in act before any
other nation, also thanks to the investments it had made in previous decades in
the form of subsidies granted for research and development in order to better
equip its companies for the international competition looming on the horizon.
Secondly,
newly elected President Bill Clinton immediately implemented the “doctrine”
that national security depended on the economy by setting up a “War room”
connected directly to the Department of Commerce as a privileged communication
channel between the State and nation’s companies in order to provide the latter
with support in world competition. At the same time, Secretary of State Warren
Christopher officially stated that “economic security” needed to be raised to
top priority status in US foreign policy.
This
may be considered an authentic declaration of economic war to the rest of the
world by its leading economic power, even if camouflaged as the defense of
national interests in an original and audacious mingling of liberalist and
mercantilist principles.
In
the contest of this new geo-economics with its high rate of competition,
characterized over the last three decades by phenomena like deregulation,
technological revolution, and the globalization of finance, the arrival of new
players in the market mixed the cards on the table and upset the relative order
that had been established.
These
were mostly nations which, on the strength of a new autonomy and independence,
not only of political nature, wanted to take part in the division of the wealth
and the dynamics of enrichment that until then had been the exclusive realm of
the world’s North. It is thanks to their voice that the reality behind poverty
was made clear to that 2% of the world that benefitted from 50% of its total
wealth.
Even
though it is constantly decreasing, poverty remains alarming today: 2.8 billion
people survive on less than 2 dollars a day. In a world like today’s,
characterized by the immediacy of information and, consequently, by the fact
that public opinion now has a greater and greater grasp of international
dynamics, there is even more reason for poverty to be considered intolerable.
In
this struggle for the division of the spoils, the new emerging nations (first
of all Brazil, Russia, India, and China, followed by Southeast Asia and many
African nations) can also learn from the experience of their predecessors like
Japan and the Asian Tigers whose integration in international exchange brought
them wealth and power.
At
any rate, the stake represented by resources is characterized by a scarcity
(absolute for some, relative for others) so high that exchanges have been
transformed into competition, or in other words, economic warfare. In this
scenario, liberalist thought on the weakening of the State must necessarily be
questioned because these recent changes demand not only a transformation of the
role the State plays in the economy but also a change in the nature of the
State itself.
The
change in the nature of the State originates, above all, from a transformation
of the concept of power, which may initially be divided into hard power and
soft power, or rather, the use of either force or influence.
In
a context in which nations resort less and less to the former than before
because it is costlier in terms of various aspects and even less effective, the
use of influence gains importance and is manifested in the form of economic
warfare (even if the latter would dissolve the distinction between hard and
soft power).
Therefore,
a nation’s economic situation has become more and more important while its
military spending has progressively decreased in significance.
Today’s
power politics will take the form of providing subsidies to businesses that
allow them to operate from a position of strength in the international markets,
providing support for employment so that delocalization does not penalize the
domestic market, and economic diplomacy oriented to procuring scarce resources.
Translated
in terms of economic warfare, these power politics imply the following things
for a State: ensuring independence in terms of resources, capacity for
self-defense against the commercial or financial threat posed by other nations,
and an aptitude for intelligence, an indispensable resource in today’s
communication society.
By
another definition, it is nothing else but one nation’s ability to impose its
will over others before they can impose theirs, whenever this is possible in a
world where dependence is more and more fragmented and dispersed.
The
real revolution is therefore merely the transformation of political power into
economic power, or in other words, the dependence of the former on the latter:
nations attempt to modify the terms of competition and to transform relations
based on economic power not only with the objective of maintaining jobs but
also and above all of ensuring their dominance in terms of technology,
commerce, economics, and therefore their political domination.
Analyzing
the single objectives of economic warfare in greater detail, at least as far as
Western nations are concerned, it emerges that the first is defensive in
nature: preserving industrial employment in the face of the widespread
outsourcing that has occurred in companies in the sector.
There
is a strong but hidden link between the second and the tertiary sectors that
Bernard Esambert defines as “industry-services symbiosis”, that consists in the
fact that more jobs in the secondary sector produce a corresponding increase in
the jobs in the services sector, while the need for the greater specialization
of workers in high-tech industries feeds the demand for training and
consultancy services.
Defensive
action that maintains employment in industry is required to avoid economic
recession and contain as much as possible unemployment and underemployment –
two elements whose high social destabilization effects pose a threat to all
democracies.
In
this regard, the leading cause of loss of jobs is not as much “delocalization”
in the strictest sense, but “nonlocalization”, when companies open branches
abroad instead of in the nation where they are established, even when the
domestic market is the destination for the goods produced.
The
speeches of George W. Bush in his first presidential campaign (but also of many
Democrat leaders in the same terms), in which NAFTA (the North American Free
Trade Agreement) was indicated as the cause of a hemorrhage of jobs to the
benefit of Mexico, were emblematic of the importance of preserving jobs.
Other
tangible examples include the commitment of the French government to save the
ArcelorMittal Group’s Gandrange productive unit, despite the considerable
economic drain on the State’s coffers, or, more recently, the agreement with
Electrolux in Italy.
While
the reason behind such decision is obviously electoral in nature, it also
reveals another aspect: no nation can afford to lose its productive capacity
upon pain of becoming dependent on others.
Delocalization
is also a hard thing to swallow for any electorate, and for such reason always
occupies a central position in the political debate, given that the
consequences of unemployment, underemployment, wage pressure, balance of
payments, and the contraction of consumer spending would undermine the pillars
on which our consumer society stands – even if the option naturally has its
defenders, such as the IMF, which tends to focus on the advantages in terms of
output generated instead.
Power
politics are nowadays developed also through industrial policies intended to
maintain a certain type of territorial “control” by the State.
Economic
warfare’s second objective instead is offensive in nature and regards the
conquest of markets, and above all, limited resources: the so-called “scramble
for raw materials”. Secure and uninterrupted raw material procurement is, in
fact, the only way to guarantee the continuation and, auspiciously, the growth
of a nation’s economic level.
In
what is nothing less than a war for resources, the most coveted are energy
sources (oil, natural gas, coal, uranium to produce nuclear energy, bodies of
water for hydroelectric power production), the demand for which is directly
linked to economic development and the objects to be contended.
Foodstuffs
such as corn, rice, soya, and wheat also have a certain relevance in the
dynamics of power in financial markets. Wheat, in particular, is subjected to
every form of speculation and contention, and dictates relationships of power
between the producers and the needy, and in extreme cases, can be used to every
sense and effect as a weapon.
It
is by now commonly accepted that oil gives rise to extremely harsh economic
conflicts if not authentic armed conflict. This scarce resource alone accounts
for over 35% of the world’s total energy consumption, principally by the
nations in Asia (30% of the world’s consumption), North America (above 28%),
and the European Union (over 17%).
The
extent of the economic warfare now in progress is amply illustrated by the
twofold tension between producer/consumer nations, on one hand, and between
nations whose demand has stabilized/nations whose demand is rising, on the
other.
This
tension conceals the prospect of future conflicts, even armed conflicts (i.e.
the previous two Gulf Wars). The ferocious struggle that pits the United States
against China for Africa’s oil and other underground resources (assorted rare
metals and gemstones) provides another example of this economic war.
Although
China began investing in sub-Saharan Africa only at the end of the Cold War, it
has by now become the continent’s third trading partner after the United States
and France, even if it is not always viewed positively by local governments due
to its predatory attitude that recalls the former Western Colonial powers.
The
Chinese colossus is a good example of the inversion in power relations
currently in progress between the Western nations and the developing nations,
first of which, the BRIC group. Once exclusively producers and suppliers of the
raw materials required by the industrialized North, these nations are now
rising in the world’s ranking of importance thanks to the increased control
(also internal) of their production.
This
awakening of the world’s South has completely upset the global balance, also
because it is manifested in the control of not only natural resources but also
entire companies that were once exclusively Western-owned, but which now
consist more and more of Arab and Asian capitals.
Sovereign
wealth funds dominate this area, especially the Chinese and Singaporean funds
which, aided by the economic crisis that has struck the more mature European
and North American economies, now hold significant shares of highly important
companies such as Morgan Stanley and Merrill Lynch.
These
examples show that both the public debt of the Capitalist nations and a good
part of their GDP is now in the hands of these so-called developing nations
through their control of company capital or – as in the case of Saudi Arabia –
through the wealth created using Arab oil.
As
may be logically inferred, the strategic advantage imparted to these nations is
considerable.
Lastly,
another resource has become crucial, and its control is determinant in a
context of economic warfare: knowledge of the current level of technology, the
reference market, partners and competitors; in a nutshell, knowledge of
economic business strategy, and “enemy” nations, that is to say intelligence.
Despite
being relatively new, this resource has now become fundamentally important for
the technological progress of past decades and is now just as important as the
financial capital necessary for the start-up and continuation of companies, raw
materials for production, and the human resources required.
Economic
intelligence programs managed and coordinated by the State have therefore
become indispensable to avoid inadmissible delays in a framework becoming more
and more fiercely competitive.
The
third revolution that has engendered the current scenario of economic warfare
where nations constantly compete for resources or every kind (therefore not
only raw materials) is theoretical, if not ideological in nature.
We
may refer to a return to Mercantilism, obviously of modern interpretation, in
the degree that power is expressed primarily in the form of exports. In the
words of Bernard Esambert, “export is the objective of economic warfare and its
industrial component” because it “means employment, stimulation, and growth.
The prize at stake is the conquest of the highest possible number [of world
markets]”.
The
close connection between volume of exports and economic power in the ranking of
the world’s leading exporters is not hard to see, with Germany (responsible for
9.5% of the world’s exports alone) at the top followed by China and the United
States, and then the leading G7 powers (Japan, France, Italy, United Kingdom,
and Canada) and 7 various developing nations (South Korea, Russia, Hong Kong,
and Singapore) among the top fifteen.
The
same leaders of the world’s economy are also its biggest importers, such as the
United States, Germany, China, Japan, the United Kingdom, France, Italy,
Canada, Spain, Hong Kong, South Korea, and Singapore, in demonstration of the
fundamental role exchange plays in terms of economic power.
This
neo-Mercantile tendency, in addition to partially refuting the idea of the
progressive and inevitable weakening of sovereign states in this era of
globalization, represents a new triumph for such nations and makes them the
protagonists of international relations.
The
political analyst Edward N. Luttwak expresses the concept well with the
affirmation that in the arena of international exchange, where Americans,
Europeans, Japanese, and representatives of other developed nations all
cooperate and compete against one another at the same time, the rules of the
game have changed.
Regardless
of the nature or justification of national identity, international politics
remains dominated by nations (or associations of nations such as the European
Community) based on the principle of “us” against the wide aggregate of “them”.
Nations
are territorial entities delineated and protected by jealously claimed borders,
many of which are often still under surveillance. Even if they may not think to
rival one another militarily, and even if they cooperate daily in dozens of
organizations of international or entirely other nature, nations remain
fundamentally antagonistic to one another.
As
illustrated above, the end of the Cold War was the turning point that returned
single nations to the center stage of international relations, even if the
apparent victory of multilateralism during the Nineties seemed to suggest the
opposite would be true.
Precisely
when the impulse for the creation of a World Trade Organization oriented to
free exchange and the guarantee of fair and equal relations between nations at commercial
level arose on one hand, the bonds of solidarity that unified the members of
the Western bloc were weakened or even voided of meaning, on the other, and
nations that were once allies now become competitors.
This
reading is interpreted by certain critics of the theory of “economic warfare”
as the result of society’s lack of economic culture that encourages the
identification of enemies and malicious third parties as being responsible for
the more or less sudden oscillations in domestic economy. In fact, this vision
stems from a renewed desire for a stronger State and is a purely irrational
expression and does not coincide exactly with general interest.
The
change in interpretation that has emerged in concomitance with this historical
conjuncture is closely linked to the publication of a number of works by
economists and political analysts of particular stature, the first of which is
entitled Head to Head: The Coming Battle among America, Japan and Europe (1992)
by the recently departed Lester Thurow, an esteemed scholar of the consequences
of globalization whose work has been taken into consideration by the US
government since the Sixties.
The
United States Secretary of Labor under President Bill Clinton, Robert Reich, is
instead the author of The Work of Nations (1993), an analysis of the
competition between nations, while right from the title, A Cold Peace: America,
Japan, Germany and the Struggle for the Supremacy (1992) by Jeffrey Garten, is
at the same level, and its author became a member of the first Clinton
administration as Undersecretary of State for Foreign Trade.
All
these works written by statesmen and political decision-makers who imposed,
among other things, the Clinton era’s “diplomacy by business” helped mold
today’s concept of economic warfare thanks to their description of the world’s
economy in terms of conflicts between nations.
On
the other hand, this was a particularly pressing need for these latter, and the
only way to reassert their supremacy, with particular regard to the multinationals,
who appeared to be the sole masters and lords of the world’s economy.
Once
again it was Luttwak who suggested an interpretation of this sudden conversion
of 8 the elite to the dogma of economic warfare, suggesting to the European,
Japanese, and American bureaucrats the idea that geo-economics is the only
possible substitute for the diplomatic and military roles of the past, and that
it is only by invoking geo-economics’ imperatives that national administrations
can lay claim to their authority over simple businessmen and fellow citizens in
general.
Subjects and types of economic warfare
After
describing the three revolutions of geopolitics, the idea of power, and the
theory of commerce, the protagonists and the forms assumed by geo-economic
conflicts deserve to be scrutinized in detail.
The
new centrality of the State in international relations, especially those of
economic nature, is useful in delineating the concept of “economic warfare”,
which may be defined as the clash of nations by means and for the purposes of
their economies, and not merely as economic competition alone, which more
closely regards companies.
The
renewed central role of the State in the economy is a recent tendency that
emerged with the arrival of the Third Millennium and to even greater degree in
the wake of the recession caused by the financial crisis of August 2007,
whereas, during the Eighties and Nineties, the neo-liberalism in fashion viewed
the State exclusively as a hindrance to economic development, financial globalization,
the trans-nationalization of businesses, and the intensification of
international exchange (in this regard, President Reagan’s words: “government
is the problem” have gone down in history).
The
State, with prerogatives also in the economic field, has survived this slight,
and by continuing to promote the development of its companies by constructing
an adequate juridical, fiscal, and infrastructural framework has laid a solid
basis for the role it has assumed today almost as some resolute “military chief”
familiar with the “the Profession of the Arms”, restituting morale and stimulus
to the conquest of the economy and guiding its troops to victory in the markets
and procurement of resources.
Examples
of government administrations that have embodied this role or continue to do so
are provided by the Japanese Ministry for Industry and International Trade, an
emblem of Japanese economic power, and in France, the Union of the Presidency
of the Republic, the Presidency of the Government, and the Ministry of Finance.
The
ground forces, instead, are nothing but the private sector companies
themselves, even if critics of economic warfare theory insist on affirming that
such hierarchy of roles would be impossible to establish, given that the
State’s logic of power and the companies’ logic of profit do not coincide.
Such
criticism may be discarded, however, when considering that what really happens
is not a direct alliance between the State and Big Business as much as an
indirect repercussion of the latter’s power over the nation in which these
companies have established themselves.
We
refer here especially to the large multinationals: a glance at the nations of
origin of the world’s top 1,000 manufacturing companies in 2007 illustrates
rather clearly if not over-emphatically the dynamics described above.
The
United States and Japan, vaunting 305 and 209 multinational companies
respectively, are far ahead of both the other Western nations in this ranking
(France, Germany, The United Kingdom, Canada, Switzerland, Italy, Finland,
Sweden, the Netherlands, Spain, Norway, and Luxembourg) and the developing
nations (South Korea, Taiwan, China, Brazil, India, and Russia); these latter
have evidently higher growth rates, however, and could rise rapidly in the
scale in the coming years.
This
is, naturally enough, a strategy system that works against the multilateral
institutions developed above all in the Nineties, and one in which today’s
Western nations prefer bilateral agreements that leave the field more receptive
to dynamics of alliances and relationships of power, in the opinion of Bernard
Nadoulek.
What
has happened, in fact, is that the State has appropriated for itself the three
revolutions indicated above to push transition from Cold War logic to Economy
Warfare logic rather than merely assuming the role of guaranteeing the rules of
the game, monitoring fair play, and bailing out the losers.
This
is because the State possesses prerogatives not within the reach of businesses
– for as big as they might be – especially in terms of long-term funding and
farsighted investment in costly technologies and avant-garde sectors.
Not
only funding, but also long-term planning lies in the domain of the State more
than the companies, such as the Commissioner’s Office for Economic Planning
that existed from 1946 until 2006 in France, and at European level, the two
10-year Lisbon strategies, the first adopted in 2000 by European Union members
with the objective of making the EU “the leading knowledge economy” and the
second, “Europe 2020” for inclusive, sustainable, and intelligent growth, not
to mention the heads of state that personally embodied roles inspired by their
economic outlook, such as the charismatic personalities, Margaret Thatcher and
Bill Clinton, both personally committed particularly with Saudi Arabia for the
stipulation of supply contracts, and the decidedly harsher figure of Vladimir
Putin, who deliberately wielded Russian gas simultaneously as a weapon of
dissuasion/persuasion.
The
role to be played by companies in this context of economic warfare would
therefore be that of serving as “the troops”: on the frontline, when they
export consistently, in the rearguard, when they are able to keep a solid hold
on domestic market niches, and as the spearhead, if they conduct a good part of
their activities on foreign soil.
The
latter case regards above all the large multinational industries whose economic
importance is measured not in terms of their annual turnover as much as in
their degree of globalization, or in other words, their capacity to conquer
foreign markets.
Such
capacity can be measured by considering the values implied in a company’s
transnationality index, the assets it holds outside its parent company’s home
nation, the percentage of its sales it makes abroad, and the number of its
employees who work abroad. There are certain elements that do not make this
military-type identification as automatic as it might seem.
First
is the question of the nationality of a company, especially that of a
multinational: analyzing the stock market indices of the Western powers, what
immediately captures the eye is the quantity of capital held by foreign
residents, which very often exceeds half of the total of all the companies
listed in these stock markets themselves; in cases like these, ascribing just
one nationality to such corporations is clearly controversial.
Yet
the concept of nationality is fundamental in defining economic warfare because
this latter ceases to exist if there is no need to defend property inside the
nation itself either directly – by the State’s possession of shares, for
example – or indirectly by guaranteeing independence in regard to foreign
companies.
In
this case as well, the United States confirms its position on the frontline in
defending its own interests as demonstrated by the two interventions of the
Bush administration in 2005 and 2006 to prevent the purchase of Unocal (a
leading oil company) by the China National Offshore Corporation and to oblige
Dubai Port World to sell the management of six large US ports to AIG
International, a financial services and insurance company.
On
the other hand, there are at least three factors that permit companies that are
based on international capital to be considered a nation’s own companies: first
of all, the territory in which the company was originally founded and where it
developed its activity by constructing bonds with suppliers and clients and
operating on the basis of the unwritten practices derived from a determined
nation’s culture; secondly, the standards and institutional relations that
enabled the company’s development that also depend on the nation in which the
company has its headquarters; and thirdly, the location of the decision-making
center, the business culture, and the nationality of the owners of the capital.
The
second element that makes problematic the automatic identification of companies
as “the troops” of economic warfare is the convergence of the State’s and the
companies’ interests.
As
mentioned above, the State’s logic of power does not coincide with the logic of
profit applied by the companies, which often show themselves indifferent to the
nation’s best interests. However, the economy is perhaps the chief worry of
both the State and its operators today, who, by conquering segments of the
market that purchase their products, guarantee adequate employment levels and
constant and secure tax revenues for the State, in this way contributing to the
management of social balance and the funding of public services (healthcare,
education, justice, defense, etc.).
However,
the fact that some companies create jobs and pay taxes in foreign nations
contributes, at least indirectly, to the control of a foreign market by
interests that are nationally held and instrumental in the power politics of
the State. This convergence of interests explains why States try to promote and
consolidate the national and international leaders in various sectors.
The
United States confirms its position at the top of various standings, such as in
the aerospace and defense industries (Boeing Co.), pharmaceuticals, chain
stores (with Walmart being regularly confirmed as the world’s biggest
multinational in terms of sales for years now) and as the nation with the
highest number of spearhead multinationals, followed by Germany, which is the
world leader in automobiles (Volkswagen) and chemicals (BASF), and then China,
whose state-owned companies are reaching particular domination in the oil
industry (with Sinopec Group and China National Petroleum Corporation); Italy,
thanks to the primacy of Exor, occupies a significant position in the financial
services sector.
It
is clear in the eyes of increasingly better informed public opinion that the
opening of branches abroad by multinationals or the delocalization of
production – even by companies of smaller size – due to the lower costs enabled
does not help domestic occupation, which is an indicator of economic power (and
also social control) beloved by nations.
With
this affirmation in mind, nations have developed two types of approach: the
most widely-adopted are attempts to motivate foreign companies to invest in
their territory by offering tax breaks and more advantageous regulations – an
area in which Italy ranks last among Western nations owing to the inefficiency
of its bureaucracy, revenue agency, and civil justice system.
The
second approach is the one pioneered, once again in the United States, by
President Clinton’s proposal to support all countries operating on US soil
regardless of nationality in order to create jobs and maintain the national
employment rate.
The
conclusion that may be drawn from the analysis above is that, although
companies and nations moving the arena of economic competition may not work
closely together (also because it would be naïve to think they would) in
certain cases they may indirectly promote each other’s intervention strategies
by using their respective arms and playing their winning cards.
Considering
the role that the State is required to play more and more in the context of
international economic relations, destabilizing the neo-liberalist system still
prevailing at global level today, it is easy to imagine a day when nations and
their companies are compelled to put their heads together in the planning of an
equilibrium that takes the needs of both into account.
Owing
to its exceptional seriousness affecting every nation on earth and the fact
that it is impossible to imagine any one country from emerging as the absolute
winner over all others, the great recession triggered by the financial crisis
in August 2007 works to the benefit of a dialectic in international relations
in which the multilateral logic of the large organizations, foremost of which
the IMF and the European Union, but also the WTO and the UN regain central
importance.
The
nations in the G20 Group, which will gradually replace the G8 as the leading
economic forum of the most developed nations officially maintain dialogue as
the method of choice in regulating economic difficulties, also because the
urgency of the economic situation appears to demand a collective response to
save world finance and avoid contractions in exchange without, however,
creating the short-circuit in the economic system generated during the Thirties
that led to the events in the history of the world and Europe in particular
that are too well known to require description.
The
contradiction is right around the corner, however: if this is the official line
maintained by the States, reality demonstrates that the need to conserve the
portions of the market acquired is more important than the imperative for
solidarity in the financial sector, heightening tensions that are already high
due to the crisis.
Although
viewed exclusively negatively by most, an economic crisis often provides big
opportunities to the companies that survive, which have better chances of
winning new “territories” where previous suppliers have succumbed (in France,
these companies are supported in this type of activity by Ubifrance, the French
International Business Development Agency whose Italian equivalent is the ICE –
Agency for International promotion and Internationalization).
This
marks the return of the logic of economic warfare, and once again it helps us
comprehend attitudes that may appear discordant, if not schizophrenic, and
which must be read instead as the evolution of post-Cold War relationships
where alliances that are no longer military in nature allow nations to not feel
bound to their partners at the cost of their own lives, and even to consider
them commercial competitors and treat them accordingly.
The
post-bipolar world no longer consists of just one chessboard where only two
adversaries move their pieces but instead numerous boards and players that
overlap, where a match played on one often affects outcomes on the others.
We
might say that the concept of a multipolar world adopted to define
international relations after the end of the Cold War remains valid, provided
it is not interpreted in an idyllic sense or as the backdrop to definitive
harmony among peoples and rather instead in the sense of economic warfare where
the roles assumed by the nations/players shift back and forth ambivalently
between partner/competitor and resemble less and less those of ally/adversary,
excluding each other whenever possible.
In
this interpretation, the Cold War’s two power blocks become three: the first is
the realm of power still theoretically occupied by Western block but gradually
eroding, with the possible exception of the United States; the second is the
ample space for maneuver continuously opening up to the emerging powers (even
if it has appears to have slowed down recently) and their expansion also in
terms of number of nations; the third block is the space left for the survival
of the nations not included in the two blocks above, a new hypothetical Third
Word.
The
analysis that the two experts Christian Harbulot and Didier Lucas make of power
strategies until 2020 confirm the general crisis of multilateralism and the
reaffirmation of nation states’ sovereignty and power.
It
is important to recall that the alliances inside the three new power blocks
presented above lack the necessary character vaunted by alliances of the past,
and that there are even very close connections between nations at the helm of
different blocks.
It
is sufficient to consider the complexity of US-China relations, for example: in
sub-Saharan Africa they are rivals in a no-holds barred battle for resources,
yet both are linked to a certain extent by China’s funding of the US foreign
debt through its purchase of US savings, on one hand, and by the consistent
direct investments abroad on which the Asian giant’s growth depends, on the
other.
The
analyses here are conflicting: some experts believe that China will not be
content to play a secondary role in world affairs for much longer, and even now
through the weapons of economic dependency and technology transfer China is
demonstrating the offensive measures it will be able to take in the future and
the probable war in the Pacific; others are more concerned about the strategic
alliance China is making with India on high-technology that might place Western
powers lacking such a weapon in checkmate.
Despite
it all however, even bearing in mind these scenarios in which the developing
nations finally gain the upper hand over the Old World, the United States
remains the uncontestable leader of globalization, also by virtue of the
skillful defense of their national interests.
Economic
warfare as a means in service of nations’ power strategies, regardless of
whether they are of geopolitical or geo-economic nature, may be of three
different types: economic warfare with 12 economic ends; economic warfare with
political-strategic ends; and economic warfare with military ends.
The
first form, that is the subject of the entire discussion thus far to be
considered in greater detail in the following section, is the weakening of a
nation’s adversaries in the international markets through the expansion of its
own economic power.
The
second form is primarily expressed through sanctions that damage another
nation’s economy to oblige it to change policy. This is an ancient arm of
economic warfare that can be seen in many recent examples: the economic
sanctions imposed on Italy by the League of Nations after the war in Ethiopia,
those imposed on South Africa in the days of apartheid, and more recently and
still in force, the “restrictive measures”, as they are defined in EU jargon,
levied on Russia in response to the crisis in the Ukraine: measures of
diplomatic (suspension of the G8 meeting), financial (freezing of assets and
restrictions on travel) and more specifically, economic nature (embargoes
against imports and exports in given sectors).
The
third form of economic warfare takes the form of the second but differs
precisely in its goal. Examples here include the economic sanctions against
Saddam Hussein’s Iraq in the Nineties (after the First Gulf War but suspended
by UN Security Council Resolution No. 1483 in 2003), the embargo on arms sales
imposed on all the territories of former Yugoslavia a few months after war
broke out in Croatia (which was determinant in the outcome of the war in
Bosnia-Herzegovina), and the current embargo on sales of arms to Syria
following the violent repression of the government in 2011 that sparked the
civil war still in progress.
One
would like to think, as some theoreticians claim, that the first form of
economic warfare has succeeded in eliminating nearly all direct armed
conflicts, at least those between the planet’s larger powers.
At
any rate, so-called traditional warfare has not been replaced by its less
virulent (and certainly less bloody) form, as liberals have been hoping for the
last two centuries by now.
The
scenarios of a number of important conflicts in the last twenty years
demonstrate instead that what has happened is both a substantial overlapping
and an intermingling of classical and economic warfare.
This
observation can be verified on practically every continent: in Africa, for
example, the wars that claim so many lives in the Great Lakes region are being
fought for the conquest of power and the control of natural resources at the
same time.
The
conflict in the Democratic Republic of the Congo is emblematic, where in the
aftermath of the genocide in Rwanda in 1994 the regions of North and South Kivu
have been the theater of permanent atrocities triggered by ethnic conflict (the
centuries-old clash between Nilotic peoples and Bantus that was exacerbated but
kept under control during the Colonial era and then exploded when the area’s
nations achieved independence) linked to territorial questions (some tribes
claim the lands of great landholders who are members of other tribes) and
economic reasons (control over the areas where copper, cobalt, diamonds, gold,
zinc, and other basic metals are mined).
In
Europe, the political motives behind the above-mentioned Ukraine crisis
(Russia’s opposition to the European Union Association Agreement, the
annexation of Crimea, and the pro-Russia demonstrations in the other regions of
west Ukraine) are linked on two levels to more or less evident economic motives
such as Russia’s need to maintain control over the port of Sebastopol (which is
fundamental to its trade), the importance of Kiev in the international cereal
market (the world’s second largest exporter in 2014) and her strategic location
along the corridor of major gas pipelines headed to Europe.
Lastly,
the case of Syria exemplifies the importance of economic considerations linked
primarily to energy resources in Middle Eastern geopolitics: the reason that
the Western powers have refrained from intervening in a war raging for five
years now is the relative paucity of oil and natural gas in the reserves under
the control of Damascus that the West – still under the effect of the economic
crisis – does not consider worth the substantial costs of fighting for.
Economic warfare and its armaments
This
section provides a detailed analysis of the armaments nations use in economic
warfare to win the war and assert their power. The first arms to be considered
are those of indirect type that work in the background of a “covert war”.
In
this highly particular aggregate of economic warfare weapons, the one with the
greatest influence on all the others is undoubtedly training, which is wielded
principally by the industrialized nations and has contributed in large measure
to their economic success. In this regard, it is sufficient to recall the
importance granted to this factor by the European Union, to the extent that two
out of the eight objectives of Europe 2020 strategy for intelligent,
sustainable and inclusive growth regard education (reducing the rate of early
school leaving to lower than 10% and increasing the number of 30-34-year olds
with university degrees to 40%).
Checking
the ratio between training and economic development, examples like Germany,
whose educational and training system is acknowledged as being one of the
world’s best, or Japan, where the high school graduation rate is around 95%,
confirm the affirmation above, especially when considering the ways in which these
two nations address international markets.
Naturally,
this does not involve only basic training, as important as it is in laying the
foundations and outlining a certain path to progress also in economic field,
but particularly regards the ongoing education that endows participants with
the necessary qualities of versatility and the multiple skills required to stay
constantly up to date and never unready for change. In this regard, another
good example is provided by the French business schools, the most prestigious
of which can be ranked among Europe’s best and whose success is derived in
large part from a national model that envisions two years of basic training in
general fields ranging from the scientific to the humanistic prior to
subsequent specialization.
One
special characteristic of the elite trained in this type of modern school is
its international dimension, an aspect that differs significantly from the
markedly chauvinistic character of the military preparation that was provided
in previous centuries which, if the concept of economic warfare as the modern
version of traditional wars is accepted, should be the natural continuation of
the latter.
Concluding
the aspect of initial training, the role played by specialized training and
research that are so crucial to the affirmation of economic power must
necessarily be mentioned. It is not by chance, we repeat, that the European
Union has been affirming that it wants to become the “leading knowledge
economy” since the start of the millennium and that France alone, for example,
vaunts 160,000 researchers, a number that has more than doubled in the last
seventy years.
Knowledge,
in fact, has become economic warfare’s supreme weapon, and the potential
represented by research is the driving force behind the transformations of our
times.
Therefore,
emerging nations like China and India, which have perfectly understood the
crucial challenge involved in producing knowledge – be it basic or applied –
are anything but far behind in this “race to knowledge”. If statements from
leaders like Prime Minister Wen Jiabao, who went so far in 2005 as to proclaim
the 21st century as “the Asian century of high technology” arrive loud and
clear from Beijing, prestigious technological institutes built on the model of
MIT in the Sixties turn out an army of 170,000 graduates on the Indian
sub-continent every year.
In
the field of research, cooperation between universities, schools, and the
private sector is essential because the latter awaits specific and timely
returns on the work of the researchers, a form of cooperation that today takes
the form of “clusters” or “poles of competitiveness” where research institutes,
engineering schools, and high-tech companies coexist as extraordinary
innovative incubators of avant-garde economic power.
In
this regard, France has been promoting this type of reality, which represents
highly attractive elements for the territories in which they are located, with
absolutely avant-garde training activities since 2005.
At
any rate, there are enormous differences between nations in their policies in
favor of research, even among the leaders: it is unfortunately a cliché to
refer to Italy in this regard, where although the fundamental importance of
solid research in order to provide companies with high-performing technologies
that allow them to become competitive in international markets is acknowledged
in words and even funded by the private sector, the number of research workers
employed by companies is five times lower than that of the United States,
Japan, and Sweden, not to mention the so-called “brain drain” or, in other
words, the researchers who leave Italy in search of better work opportunities,
higher salaries, and more recognition of real merit and skills instead of the
favoritism, bureaucracy and scarce generational turnover, so common in their
native land.
For
every “Italian brain that goes down the drain” there is another nation happy to
welcome researchers, and some even use the attracting and recruiting of
highly-qualified, specialized personnel as a weapon in economic warfare: one of
these is the United States, which on various occasions during the 20th century
set out a welcome mat for the planet’s finest minds, starting from the Jewish
elite in flight from Nazi-Fascist Europe and continuing with the dozens of
physicists and mathematicians fleeing the former Soviet Union in the Nineties,
and in more recent times as US universities throng with Indian and Chinese
engineers and economists.
The
fact that three-quarters of these end up staying in the US after they finish
their studies makes the advantage to the US economy easy to see.
Directly
linked to research and innovation, a driver of fundamental importance for
companies and one in which the State has every interest in investing, the example
offered by patents shows the degree to which collaboration between research and
the State may be advantageous.
The
world’s top-ranking nation in terms of patents filed is China, whose patent
office has been the world’s leader since 2013 and home to one-fourth of all the
patent applications filed on earth. China is followed by the US, whereas Europe
is gradually losing ground to an increasingly massive Asian presence, given
that the next positions are held by Japan, South Korea, and India.
Most
of the world’s patent applications are filed by private companies (Matsushita,
Philips, Siemens, Huawei, Bosch, Toyota, Microsoft, to name a few) but without
help from the State – especially in previous eras (we refer to the decisive
role in terms of research and development played by the US military command or
the Japanese MITI) – they would never have been able to accomplish such
results.
These
States also created a sufficiently protected and favorable regulatory
framework, for which reason research for patent applications can be considered
to be in the best national interest, a guarantee of productivity, or in other
words, a decisive arm in the commercial clash between nations.
Passing
from the wide field of the management of various forms of knowledge as a weapon
for use in economic warfare to the field of competitiveness, we might say that
this is a terrain on which the State can play all its cards to best advantage.
It
is in the State’s own interest, in fact, that its companies are as
well-equipped as possible to face the competition in internal and external
markets.
In
this particular historical moment in which momentous changes are taking place
in the world’s power positions, we observe that while certain nations make
impressive advances in international markets (China’s percentage of the world’s
global exchange has risen from 2% to 9% in little more than twenty years),
other nations with solid historical performance in the field fall behind (such
as France, for example, which during the same period of time dropped from 6% to
around 4%) while others maintain their positions (Germany provides a notable
example of continuity by remaining at the top with around 10%).
In
this context, the State plays the role of coordinator and supplier of
instruments for the reading, understanding, and interpretation of the
“battlefield” of international exchange thanks to the extent and diversity of
the range of knowledge that at least some of its functionaries should have of
foreign nations.
Taking
France as example, this role is played largely 15 by the Secretary of State for
Foreign Trade, which has been working in these years of economic crisis
primarily to contain the erosion of France’s share of world markets, which
despite being ascribable to changes that are mostly inevitable and affect all
the Western powers, remains a source of concern for the nation’s economic
balance. As remedy, Ubifrance, the French International Business Development
assigned to promote exports by French companies through its knowledge and
expertise, has been recently reformed.
The
institution with practically the same functions in Italy is the ICE Agency for
the facilitation, development, and promotion of Italy’s economic and commercial
relations abroad, especially those involving small-medium businesses, which
works to stimulate the internationalization of Italian companies and the
marketing of nationally-produced goods and services in markets around the
world.
The
active role of the State in negotiating large production contracts is another
element in the more general promotion of competitiveness and provides a
tangible form of cooperation with companies that is so often invoked but so
difficult to effectively implement: the partnership between the United States
and its weapons and aeronautics industries offers a good example.
Degree
of competitiveness is a useful indicator applicable to companies;
attractiveness instead applies to territories: attracting foreign investment
means creating jobs at home and benefitting from tax revenues. Fiscal policy,
control over the territory and culture are important components.
As
regards fiscal policy, we have seen this to be a sore point of Italy’s
attractiveness, even if the other European nations, Belgium and France in
particular, have similar corporate tax rates. Ireland, on the contrary,
provides an example of how “lightweight” corporate tax policy can provide
strong incentive for direct foreign investment: by applying a rate of around
15%, which is hotly contested by the EU, however, the “Celtic Tiger” has succeed
in attracting foreign companies primarily in the high-tech and IT sectors (from
Adobe to eBay and Yahoo!) that were largely responsible for its economic
growth.
China,
on the other hand, has developed a policy of establishing special economic
areas in the provinces of Guangdong, Fujian, and Hainan and created
particularly attractive tax regimes in such areas for foreign companies that
choose to set up business there.
Control
over the territory as intended here indicates the level of development of the
infrastructure that companies require to procure their raw materials, take the
results of their production to the four corners of the globe, and communicate
with one another: air connections, high-speed trains, roads and ports, not to
mention coverage for mobile telephones, which by now have replaced fixed
telephone networks nearly everywhere, and in some parts of the world, such as
sub-Saharan Africa, for example, the extension of fixed phone lines even
appears unnecessary.
Culture,
which may appear to be the least tangible element, is far from being the least
exploitable component of soft power, as defined by Joseph Nye. Unlike the many
other elements analyzed, culture is undeniably a characteristic that Italy has
in abundance and from which it can draw profit, as the nation’s Prime Minister
continuously repeats and promotes, and as the nation itself proved capable of
demonstrating on the occasion of Expo 2015, where the “Italian way of life”
based on wellbeing established on the combination of taste and beauty did not
fail in attracting a vast audience of potential investors.
The
last strategic weapon to be taken into consideration here in the context of
covert war is economic intelligence, which the High Commissioner at the General
Secretariat of the French Ministry of Defense Alain Juillet defines as a method
of governance focused on the control of strategic information that aims at the
competitiveness and the security of both the nation’s economy and its
companies.
Another
two renowned experts on economic welfare, Christian Harbulot and Éric
Delbecque, proposed their definitions of economic intelligence. The former
defined it as the constant search for and interpretation of the information
accessible to everyone with the intention of deciphering the intentions and
hypothesizing the capacities of the protagonists.
The
latter expert instead defined economic intelligence as the culture of economic
battle, and therefore both the expertise – intended as the aggregate of methods
and instruments of surveillance, security, and influence – and the public
policy aimed at increasing power through the drafting and implementation of
geo-economic strategies and actions in favor of the collective control of
strategic information.
Intelligence
is naturally intended here in its original Anglo-Saxon meaning, or rather, the
gathering of information required to calculate how to move best over any
terrain necessary, and not as much in the exaggerated aspects of Cold War
spying and secret agents that emphasized a culture of information as the realm
of only a few obscure experts with scarce regard for the unlawfulness of the
means employed (transfers of technology, thefts of computerized material, the
dismissal of strategic frameworks, etc.)
When
analyzing what economic intelligence consists of in greater detail or the
concrete application of what is sometimes erroneously termed “information
warfare”, three fields of action may be distinguished: vigilance, the
protection information, and the creation of lobbies.
The
first of these takes form in the surveillance of the economic area in question
to identify with a certain quickness any threats for which protection must be
provided and any opportunities to be seized. Vigilance can be divided into its
seven types: competitive, commercial, technological, geographical,
geopolitical, legislative, and corporate, and anything that serves the
accretion of the influence and therefore the power of nations capable of
putting it into action.
The
point of view being proposed here, in fact, places priority on the ability of a
nation to use this strategic weapon rather than that of single companies that
employ it for the purposes of increasing their total sales and profits.
An
offensive and defensive weapon at the same time, as when it is used to prevent
competitors from allying or to spread disinformation, economic intelligence is
the flagship of economic warfare policies due to the importance intelligence
assumes in modern economies.
It
is in this field, moreover, that close collaboration between the State and its
companies becomes even more necessary, such as in accordance with the model
developed in Japan immediately after the Second World War when the foundation
of the Japan External Trade Organization complemented the efforts of the
above-mentioned MITI.
The
intensification of commercial bonds with other nations was therefore supported
by the ample powers assigned to this latter in a context that was not only
economic but also cultural and in which the participation in the effort of
making one’s nation great through achievements in terms of technological
innovation and commercial projection was every citizen’s moral obligation.
It
is no coincidence that of the entire national budget allocated to research and
development, Japan dedicates a sum equal to between 10 and 15% to scientific
and technical information. Something similar takes place in the United States,
even if it is formally masked by the official reference to lawful competition.
The
US administration in fact set up a “counter-intelligence” service derived from
an extension of the prerogatives of the CIA, which in this way plays an active
role in industrial espionage for the purpose of providing the nation’s
companies with secret information on their foreign competitors.
After
amply analyzing the arms used in covert economic warfare (training managers,
implementing policies of competitiveness and attractiveness, channeling
economic intelligence) a review the various offensive and defensive arms
available to nations can now be provided.
While
sanctions have already been mentioned above as a form of economic warfare
conducted with political-strategic ends, an instrument that is even more
suffocating for the adversary is a boycott, which can even be extended to an
even wider ban on sales: examples are provided by the weapon wielded by
President Carter in 1979 to freeze the sale of cereals to the USSR following
the Red Army’s invasion of Afghanistan, Russia’s current threat to close the
taps on the natural gas pipelines to Europe, and China’s boycott of French
products in 2008 in revenge for the support Paris had given Tibet, an issue
that reached prominence again on the eve of the opening of the Beijing Olympic
Games also in many other Western nations following China’s repression of the
rebellion by Tibetan monks.
Another
measure that might be interpreted as retaliation is the imposition of import
restrictions, a practice that if prohibited in the European Union is instead
widely used by the United States in the most various sectors, ranging from cheeses
to automobiles and aimed at protecting the large US producers at the expense of
Japanese products, in response to which Tokyo preferred to negotiate rather
than risk even more severe restrictions.
There
are also peak tariffs, in other words, customs duties of higher than 100% often
applied to agricultural products coming from determined nations (see for
example the terms for inclusion in the WTO imposed on Afghanistan in 2014 at
the end of negotiations).
As
will be seen below, these directly offensive weapons are matched with the other
indirectly offensive weapons of open economic warfare. The first is the
so-called “business diplomacy”, which, despite being a practice with a long
tradition, was perfected by the Clinton administration.
It
consists of a sort of massive assault by a nation’s companies on foreign
markets supported by a careful preparation of the terrain (liberalization of
exchange with the nation involved), detailed knowledge of the field of
encounter (industrial and commercial information), and skillful directing by
the State (in the United States in the Nineties, the Advocacy Center informally
known as the “War room” entrusted to constantly monitoring the world’s
industrial markets).
If
the first of these elements – the liberalization of exchange – is considered in
closer detail, it is easy to see how it has been used as nothing less than a
real weapon, especially by the United States.
The
free trade agreements this nation has signed have always revealed their
offensive power as instruments of unequal relations between a strong nation on
one side and a weak one on the other, an asymmetry that has always naturally
penalized the latter.
One
example is provided by the commercial relations maintained with the Central
American nations (almost all of which signed similar agreements with
Washington): in what is nothing less than the post-Cold War evolution of the
ideas of Manifest Destiny, the Monroe Doctrine and the Roosevelt Corollary.
These
agreements are often much more intransigent than the standards of the WTO to
which all the nations belong: the supremacy of the United States is always
necessarily affirmed by its importance for these nations’ balance of trade,
given that it is their leading trading partner, and permits the unilateral
imposition of provisions solely in favor of the US, such as those covering
patents (the prolongation of patent protection rights or a loosening of the
terms of patentability that permits patents to be registered for products
already in the market), in this way maintaining US leadership. The United
States need not crush its adversaries by force, but the rules of the game must
to a certain extent be defined in its favor.
The
latest evolution in terms of offensive arms in economic warfare regards the
sovereign wealth funds that have burst into the world’s financial scenario in
the last twenty years with an impact on the international economy that makes
them comparable to veritable weapons of mass destruction.
Owing
to their enormous sums (over 16 trillion dollars are estimated for Eastern
Asian nations’ funds alone) that prevent them from being easily deposited in
classic banking circuits, these international investment funds set up to invest
a nation’s savings are directly controlled by nations or central banks.
They
were originally devised as financial instruments capable of enriching a
significant block of the State’s capital for the benefit of its future
generations (as is the case of the Norwegian sovereign fund).
Most
of these funds were set up by oil exporting nations or Eastern Asia nations
with current account surpluses of around 6.5% of their GDP for the purpose of
investing their trade surpluses and have been configured as a powerful means of
intervention on the world’s economic equilibrium, especially in the wake of the
subprime crisis when a certain number of such funds made substantial
contributions to the capital of prestigious groups (Citigroup, Merrill 18
Lynch, Morgan Stanley) with the objective of saving them through injections of
liquidity.
Citigroup
provides a significant example: it was the world’s first financial group until
2007 when – in the clutches of liquidity problems brought on by its speculation
in subprime mortgages – it appealed to various funds including those of
Singapore, Kuwait, and Abu Dhabi.
Citigroup
was effectively bailed out, but obviously under the terms dictated by these new
investors: elevated guaranteed yields on shares (from 9 to 11% per year),
guaranteed minimum prices in the event of collapse of stock prices, and the
transfer of decision-making power from the parent company’s headquarters in the
United States to the palace of one of the emirs with a substantial shareholding
in the fund.
Despite
being a purely symbolic territorial element, the latter eloquently indicates
the nation that is now in command. It is therefore evident that such a massive
intervention is by no means impartial and consequently represents to every
effect a form of control by the nation that set up the fund. Doubts arise that,
thanks also to not exactly transparent policies and management, the funds serve
developing nations’ political and geopolitical interests, and for such reason
are perceived as major economic threats by Western countries.
It
is sufficient to recall that the Abu Dhabi Fund alone would have had the power
– prior to the crisis – to purchase the top nine companies listed in the most
important stock exchange in Paris, and that China Investment Company, founded
in 2007, already occupies the 6th place in the world in terms of quantity of
capital possessed.
The
best proof that these funds are perceived as threats is the recent adoption of
measures designed to limit their purchasing power. This action vaunts a certain
tradition in the United States, where the Committee on Foreign Investments can
advise the President to reject an offer of foreign investment that might pose a
threat to a US company deemed to vaunt strategic interest.
Alongside
arms, there are protection and defensive measures. Offense and defense are
obviously used together in the definition of the same strategy and for such
reason bear equal importance in economic warfare.
Free
trade is all very well and good, provided that a nation can adequately
safeguard its industrial tissue and every repercussion such protection has on
its political and social dimensions.
If
the various theories developed by the specialists are incapable of satisfying
this principle of pragmatism, nations have no problem ignoring them and taking
the protective actions described above.
This
is why it should come as no surprise that certain defense mechanisms presented
here have already been numbered in the above-mentioned category of weapons: the
same instruments of economic warfare can be proven to be powerful methods of
attack and sturdy shields at the same times depending on the context.
The
measures of protection and defense to be examined below include: currency,
unfair trade, customs and tariff barriers, quotas on imports, subsidized
exports, economic patriotism in the form of patriotic consumption, and soft power
of regulatory nature.
As
regards currency, devaluation is a powerful way to stimulate exports during
periods of economic recession, as illustrated by the actions of the Bank of
England between 2008 and 2009 with the Pound against the Euro and the devaluation
of both the Yen and the Yuan.
Currency
plays a dual role, defensive by decreasing the adversary’s competitiveness, and
offensive by making penetration of foreign markets easier.
The
question of unfair trade regards a law passed by the United States in 1962, No.
301, with the purpose of levying sanctions on nations and companies included in
the latter’s power block deemed guilty of unfair trade, which practically
amounted to those doing business with the USSR or Cuba, and authorized the
President in person to respond to “unjustifiable”, “unmotivated” or
“discriminatory” acts of this kind.
If
this is easy to understand in a Cold War context where international relations
are rather strictly regulated by political-strategic alliances, it is perhaps
harder to accept in today’s context of distension and multilateralism, yet this
attitude is hardly unusual.
During
the Nineties, President Clinton, who demonstrated fervent belief in the logic
of economic warfare on numerous occasions, renewed a so-called “super-Law 301”
issued in 1984 with the purpose of identifying the barriers raised against
obstacles to US imports by other nations and combating them with retaliatory
measures.
The
case cited above, which regarded boycotting and the measures adopted by the US
to protect its auto manufacturers against their Japanese rivals, was accepted
by Tokyo in order to the latter’s attempt to avoid being slapped with even more
severe restrictions, and arose precisely as a result of the US threat to resort
to the “super-Law 301” and a surtax on auto imports that could even go as high
as 100%.
The
institution of the WTO and its respective arbitration body, something of a
legal arena where powers battle for their rights, should prevent resort to
measures of this kind. The operation of the Dispute Settlement Body is based on
precise rules and a series of specific deadlines for each case.
The
entire procedure lasts a maximum 15 months (only 12 months in the absence of
appeal): the initial decisions are taken by a special group after first
consulting with both parties, who will then be presented with the final report
(within six months) and approved or rejected by the plenary session of the
members of the WTO. More than the issue of a sentence, the objective of the
Dispute Settlement Body is, of course, settling controversies through
consensual negotiation between the two disputing parties; one exception to this
function, which normally works smoothly in reality, was the so-called “Banana
war” that pitted the ACP states against the Latin American countries.
The
Dispute Settlement Body registered an increase in the number of appeals – which
was interpreted by its functionaries as a sign of the nations’ trust in its
procedures and decisions.
In
the current context of increasingly ferocious globalization, however, it could
prove to be one of the many means used by nations to win the economic battles
against them, and for such reason, a particularly paradigmatic indicator of the
state of economic warfare in the era of globalization.
As
regards customs barriers or peak tariffs, these are the oldest defensive
measures States have to protect themselves against the offensive strategies
developed by their adversaries.
This
type of measure is implemented primarily by developing nations as self-defense
against imports from industrialized nations (the German economist proposes the
definition “educational protectionism” in this case).
The
Western nations use the same measures to protect their industrial employment
levels, which even if they have elevated costs in economic terms they are
politically essential in maintaining social equilibrium. On the other hand, it
is worth recalling that since the end of the Second World War customs tariffs
have been constantly lowered from the 44% of the cost of the goods levied
during the Thirties to the current value of less than 5%.
We
have already mentioned import restrictions, which are closely related to import
quotas as being the most important form of barrier unrelated to price. Directly
limiting the quantity of products of a certain type that can be imported, this
measure is used to protect determined sectors of a nation’s production or to
adjust its balance of payments.
Here
again, the United States provides a good example with the limits it places on
sugar imports: thanks to precise limits on the quantities of sugar imported and
the resultant increase in the price of the final product sold to consumers, the
US sugar production sector, which is rather small in terms of employees, has
never known a crisis.
The
quotas are set by the political choice of maintaining employment levels in
determined sectors: liberal economic thinking would demand the suppression of
quotas in order to lower the price of the final product and diversify
consumption, but during economic warfare any theory that is not instrumental in
furthering the logic of power and independence proves to be practically
inapplicable.
Not
manifested only in imports, this form of “new protectionism” is also applied in
exports in the form of public subsidies provide to determined companies or
sectors of production. Known also as 20 dumping and officially illegal (see the
provisions of EC Regulation 1225/2009 of the EU Council), dumping is often
implemented indirectly. Agricultural subsidies assume importance in this sense:
both the European Union and the United States provide their farmers with
consistent aid at the expense of all those nations (especially in Africa) whose
economies depend on the primary sector of the economy but who have no power on
the international economic chessboard and are therefore so severely penalized
that they cannot even access the world’s foodstuffs market.
It
must be noted that, at least officially, both the EU and the US have agreed to
review their CAP (Common Agricultural Policy) and various Farm Bills, but,
because no deadlines have been set for doing set, the process has not yet even
begun.
Whenever
the subject of economic patriotism is discussed, the famous speech by French
Prime Minister Dominique de Villepin in 2005 is recalled: it affirmed the
State’s obligation to defend the nation’s strategic national industries,
especially in cutting-edge fields or those considered as being part of the
nation’s industrial heritage.
This
concept had first been presented in the Nineties, however, and once again on
French soil during the post-Cold War phase and the maximum expansion of
globalization, which represented a potential threat to companies with fragile
capitalization.
The
definition used by Villepin was instead derived from a report entitled
“Economic Intelligence, Competitiveness and Social Cohesion” presented in 2003
by MP Bernard Carayon of seesawing fortune (it was convincing for politicians
and entrepreneurs but deemed insufficient in its analysis by many economists)
in which the need to give a more patriotic connotation to French economic
policy was amply illustrated and demonstrated and a complete series of
objectives to be achieved was defined in this regard: the definition of the
common interests of the States and the private sector, the safeguarding of
these interests as a measure of legitimate defense against control being gained
by foreign capital, the subsequent conquest of parts of the world market, the
promotion of excellence in certain fields, and the increase of competitiveness.
The
decree issued on December 31, 2005, desired by Villepin in the protection of
production in sectors such as defense, information technology, private security
and information interception systems was based on the ideas illustrated in this
report.
On
the other hand, France is not the only nation to resort to this defensive
measure in economic warfare: the European Union itself, with the institution in
2004 of the legal form of “European company”, clearly pursues the objective of
consolidating the European dimension of these companies against the possibility
of their takeover by foreign entities, not to mention the United States – where
the Committee on Foreign Investment has the right to veto the purchase of US
companies by foreign companies – or Germany, where in 2010, Chancellor Merkel’s
government prevented the acquisition of Opel by Fiat-Chrysler.
As
regards soft regulatory power, the example most worthy of consideration is
multilateral commercial negotiation. The WTO has become the theater of conflict
between parties intent on promoting and further expanding free trade, on one
hand, and others more interested in protecting the technological advantage held
by the industrialized nations, on the other. It is obvious that the developing
nations are those most disadvantaged because the failure to liberalize
determined patents in the medical field, for example, prevents these nations
from producing medicaments at low cost.
This
WTO held hostage by the Western nations, which among other things led to the
failure of the Doha Round in 2011 after ten years of negotiation, is nothing
less than a measure of defense against the developing nations – India, first of
all, which with all its potential in the production of biotechnologies might
aspire not only to economic independence in determined sectors but even attain
the position of leader in international markets.
Another
area in which an important contest around soft power is currently in progress
is undoubtedly the Transatlantic Trade and Investment Partnership (TTIP): it is
not just any simple free trade agreement for the unimpeded 21 circulation of
services and goods but also a regulatory agreement aimed at removing the many
differences in technical regulations, standards, and homologation procedures, and
the standards applied to products and safety/hygiene rules between the European
Union and the United States, which have still a few cards to play in this game.
This
partnership, should it become valid, would create the largest free trade area
on the planet, equivalent to around half the GDP and one-third of the world’s
commercial exchange: the entire planet would benefit, and the path of
multilateralism in commercial liberalization currently stalled despite the
desire to unify world trade might theoretically be resumed.
The
current juridical fragmentation, in fact, favors the construction of a theater
of economic warfare where the strongest prevail over any other rational logic.
Last
among the measures of protection and defense mentioned at the start of this
section comes patriotic consumption, which consists simply in giving preference
to the purchase of products made at home over those made abroad in a wide range
of sectors. Whether encouraged by the State or not, in both cases it provides
an effective defense against economic warfare attacks.
The
first case is represented by the United States, where a protectionist measure
adopted at the height of the Great Depression, the Buy American Act promoted by
President Roosevelt, and approved in 1933 as one of the measures aimed at
lifting the nation out of the economic recession, is still in force in
justification of a policy that officially grants preference to US companies.
The
conflict between Boeing and Airbus for the supply of an order by the US Air
Force, for example, may be seen in this context: the European company had
initially been selected on grounds of better performance, but the Pentagon
decided to cancel the offer and return it to the decision of the first Obama
administration the day after the new President’s inauguration, in such way
implicitly favoring Boeing in this contest.
In
Japan, instead, patriotic consumption is implemented in entirely different
ways: the State has no responsibility at all, and consumers buy local products
by a vast majority. Examples are provided by the automobile market, where
Japanese control 95% of the market or the recent block on the sale of Samsung
electronic products in the Land of the Rising Sun that made penetrating the
Japanese market extremely difficult and the Korean company with a paltry 1%
share of Japan’s entire electronics market.
